New study shows Canadians coping with BoC's rate increase

By Kay RiveraFont size :

A new survey by Nanos Research found that increasing borrowing costs haven’t had a negative effect on the personal spending for more than half of Canadians (53%). Almost 43%, meanwhile, expressed a little discomfort, while the remaining respondents were quite uncertain, Bloomberg reported on Monday.

These relatively positive results might push the Bank of Canada (BoC) to raise interest hikes, with the goal to slowly bring back borrowing costs to more stable levels. BoC Governor Stephen Poloz will have to keenly observe the impact of larger interest rates on consumers, especially given the rising debt level and the corresponding repercussions it has brought in the country.

Over the years, Canadian debts have continued to add up due to cheaper borrowing costs.

“Households have taken advantage of exceptionally low borrowing costs since 2008 to accumulate a record $2.1 trillion in debt, mostly mortgages. That’s left Canada with a ratio of household debt to gross domestic product of about 100%, the highest in the Group of Seven, according to data from the Bank for International Settlements,” said Bloomberg.

A decade later, the consequences seem to be showing as debt has begun to restrain spending, especially in heavily indebted demographics, according to Nanos’ survey. “The impact is highest in Quebec, with a majority in that province saying they are spending less, and individuals aged 35 to 54, a group which holds the highest share of outstanding mortgages.”

These findings also came with a caution that the complete impact is yet to be seen, as increased borrowing costs were seen to have an impact on just half of mortgages in any given year.

Additionally, figures from the latest survey implied positive developments, especially when compared to data from last month.

“At the same time, there isn’t much evidence of a sharp deterioration [in the positive sentiment for higher interest rate]. The share of people saying they haven’t been negatively impacted by the higher interest rates was 56 % in May, three percentage points higher than the latest survey. The change is within the 3.1 percentage point margin of error for the poll,” Bloomberg concluded.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate